Buy Shiv Vani Oil & Gas; target of Rs 480: IIFL

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Buy Shiv Vani Oil & Gas; target of Rs 480: IIFL

IIFL is bullish on Shiv Vani Oil & Gas Exploration Services and has recommended buy rating on the stock with a target of Rs 480 in its January 12, 2011 research report.

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IIFL is bullish on Shiv Vani Oil & Gas Exploration Services and has recommended buy rating on the stock with a target of Rs 480 in its January 12, 2011 research report.

"Shiv Vani Oil & Gas Exploration Services, a leading domestic player in onshore oil & gas exploration, has made aggressive investment to capitalise on the ~USD 4 billion pa onshore opportunity in India, but new order wins have been rather lean in the current fiscal. While current capacity utilisation levels is close to 100%, we have pared down our revenue growth estimates for FY11-12 to 10-12%. This translates to an 18-26% downgrade in our FY11-12ii earnings estimates. Lower capex assumptions mean leverage should reduce. Also, the current valuation of 7.1x FY11ii EPS remains attractive. We cut our target price to Rs 480 (from Rs 600) but retain Buy."

"For a company that has been registering 50%+ revenue growth for the last two years on the back of order growth backed up by purchase of rigs that were immediately deployed, the company's order book in FY11 has seen not much significant addition. This does not bode well for sustenance of revenue growth at such high levels in the next 2-3 years."

"2QFY11 was a particularly lacklustre quarter for Shiv-Vani, with revenues declining 10.2% YoY (27.6% QoQ). The company said this was because revenues took a hit of at least Rs1bn because strong monsoon rainfall hampered seismic survey work. In spite of expanding EBITDA margins, net profit declined 44.3% YoY, as interest costs spiked after debt increased in the quarter (including USD 80 million of FCCB)."

"We cut the fleet expansion capex assumption for FY11-13 by 60-70% for lack of visibility on new orders. Accordingly, we revise our revenue growth estimate for this period to 10-12% (after factoring in inflation in rates and value addition to contracts) rather than new order wins). The revised revenue expectations and higher-than-expected interest cost levels (because of new debt) cause us to cut our earnings estimate by 18% and 26% for FY11 and FY12, respectively. Our new target price of Rs 480 is based on 8xFY12ii EPS. Leverage is likely to fall over the next two years on account of reduced capex," says IIFL research report.

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To read the full report click on the attachment